Building banking for the future based on the right tech

Banking used to be a somewhat stagnant, hyper-conservative industry that seemingly took aeons to evolve. However, in recent years, the banking world has seen a huge shift due to pressure coming in multiple directions. Customers are demanding more from institutions and nimble new competitors are pushing the limits of what is possible. Because of this, development cycles measured in years are no longer sufficient. The market expects new products, like Buy-Now-Pay-Later, to be introduced within months, if not weeks.  

However, to make this happen, organisations need to be empowered through technology. They need platforms that augment existing on-premise environments in trusted cloud infrastructures and provide as-a-service options for those looking for more support. And while this might seem like it is readily available, it is also important to find these qualities aligned with security, performance and scalability. All of which is slightly new territory for the banking industry. 

Building Banking for the Future 

Banking solutions have traditionally had a life cycle of at least 10 years, core banking of over 20 years and some systems still in use dating back to the 1980s. The focus of upgrades or changes is normally on regulatory or technical upgrades - think operating system version while hardware upgrades and new functionality are bolted on. 

As with many other industries, the fast pace of innovation, alongside the mobile-first world we now live in, as well as crypto and Defi, are demanding a massive change for the banking industry. 

Similar to the retail industry, banking is going through its own digital transformation. Retail was built upon a static design approach with monolithic applications connected through ETL (Extract, Transform, and Load) and “unloading of data,” that was robust and built for the times. The accelerated move to omnichannel requirements brought a component-driven architecture design to fruition that allowed faster innovation and fit-for-purpose components being added (or discarded) from a solution. They have moved from application development to system composition. A great example of this is a company like Commercetools, which provides flexible and scalable components. 

Relying on the right tech 

MACH – Microservices, API first, Cloud-native, and Headless – codifies the design principles necessary for such component-based architectures. Microservices are defined as small components which own functionality and data for a given business domain. They communicate through APIs that define the contracts between the different domain teams. Typical application domains consist of hundreds or even thousands of microservices. Operating such systems in the traditional way would not be feasible; therefore, they can only be built with cloud-native technologies. In order for microservices to be able to be composed into applications, they have to expose all their capabilities and data through documented APIs. There is no need for user interfaces, which is captured by them being headless. 

Banking can take a note from the retail industry. By thoughtfully adding components to existing implementations, banks can start an evolutionary journey from existing on-premises environments to a flexible hybrid landscape delivering best of breed banking experiences. Key for this journey is a flexible data concept that meshes the existing environments with requirements of fast changing components available on-premises and in the cloud. A big part of making this move in a stable way is using a componentization solution that won’t disrupt a bank's ability to serve existing customer requirements. This makes it easier to embrace the future without upsetting existing investments. 

Picking the right combination 

Part of this modernisation move is deciding between multi-cloud, on-premises and anything in between. As financial service institutions, you have some of the most complex data secrecy and privacy rules to cope with. An effect of the complexity and diversity of these rules and regulations, as well as the interpretation and risk tolerance, means that your deployment options range from on-premises to software-as-a-service with often specific disaster recovery and data location rules. On top of that, coping with existing infrastructure and past decisions can add complexity, meaning that an immediate move to the cloud isn’t always possible. But this can happen in stages. It is important to work with software vendors who can go on the journey with you. They can take steps in the right direction and at the speed the organisation is ready to go at. Cloud native and competing with new demands from customers and the market, does not imply cloud only.

Putting the theory to the test 

In theory this is all great, but despite the need to innovate and advance, financial services is still a conservative, cautious industry. So, it is understandable that there needs to be some proof. This is where benchmarks come in. Here is a great example of how to do one, Temenos showcase how it is possible to achieve an architecture that scales to record-highs while delivering a leaner and greener infrastructure that helps banks achieve their environmental goals. 

While many banks are already dabbling in moving parts of their infrastructure from legacy databases and on-premises architectures, it is important to build a platform that combines industry trust with innovative design. Adopting this type of infrastructure can be daunting, but it will add significant value and puts more emphasis on innovating faster while removing technical debt along the way. It will also simplify the landscape for financial institutions, their software vendors and service providers.